The downward pressure on large Indian information technology companies such as Infosys and Tata Consultancy Services (TCS) is only temporary and the stocks of these firms will soon bounce back due to huge growth areas going forward, despite the negative rhetoric by the United President Donald Trump, emerging markets investment guru Mark Mobius says.
“I have seen how Infosys has come down from its peak last year, but I think this is a temporary phenomenon; I believe these stocks would pick up again because at the end of the day these companies have become global, they are not dependent only on the US,” Mark Mobius, executive chairman of Templeton Emerging Markets Group, said in a recent interview to hindi TV news channel Zee Business.
‘Trump’ card
Mark Mobius seemed to stop just short of suggesting that Donald Trump’s actual actions, against his plainspeak, are not hurting the Indian IT companies. “I think you have to be very careful on that one. I think Mr Trump’s statements are one thing but what he actually does is another thing,” Mark Mobius said in response to a question about the headwinds that Infosys and TCS are facing.
As is known, top Indian information technology companies such as Infosys, TCS and Wipro are increasingly finding themselves in tight spot, embattled in a quagmire of slowing growth and environmental difficulties that lay ahead. On one hand, reducing client spends and pricing pressures are squeezing these companies’ margins and bottom lines. On the other hand, due to increasingly tougher work visa regimes by countries like the US, UK, Singapore and Australia, these companies are finding it even more difficult to carry on with their operations in these countries in a cost-effective manner. These problems are also showcased by high number of possible staff layoffs.
Stock call
Infosys shares have vastly underperformed the buoyant benchmark and broader markets, marginally falling from Rs 1,001 on January 2 to Rs 985 at Friday’s close, against the 21%-22% gain recorded in Sensex and Nifty so far this year. TCS shares too, have risen only about 6.9% so far this year, far lower than the benchmarks.
However, Mark Mobius seemed confident that companies such as Infosys and TCS could tap into a huge new growth areas. “There is a lot for them to do in terms of AI (artificial intelligence), virtual reality, etc. These are big areas of growth going forward,” he said in the interview. To be sure, of late, Indian IT companies have begun investing heavily in automating processes in their traditional businesses such as BPO, application management and infrastructure management to improve operating margins in a rapidly evolving landscape.
IT in play
Further, Mark Mobius also said he is carefully looking at IT development sector as a whole for future growth, particularly the internet-related and outsourcing companies. “We have been spending a lot of time looking at the entire IT development as you know globally the emerging markets index’s heaviest weighting is now in IT, be in chip design, chip manufacturing and internet companies like Alibaba,” Mark Mobius said, adding, “So for India, this has to be an area of great interest considering the fact that there are so many Indian entrepreneurs globally, in the US, Silicon Valley and elsewhere who have made tremendous strides in that area. So we expect more and more of that to happen.”